As the number of online radio stations grows, ClickOnline's North American Technology Correspondent Ian Hardy looks at the challenges facing webcasters.

It has never been easier to own and operate a radio station.

One quick click online reveals hundreds, if not thousands, of music streams that provide beats all day and all night

Many music fans argue that traditional terrestrial radio in America has reached an all-time low - a small number of huge companies playing the same tiny selection of well-known hits to maximise listenership.

Internet radio pioneer Air Shohat, founder of the DigitallyImported website, is fed up with the whole system.

"What happens is that everything which could be considered niche programming can be cut out and you practically have the top 40 all over the place," he said.

"That way they don't take the gamble that if somebody doesn't like a specific kind of jazz or electronic music they don't have to worry about this."

Mr Shohat's station plays a number of streams covering trance, hard trance, hard house and Eurodance - music that is difficult if impossible to find on the FM dial in New York.

Pay to play

There is an argument that if people hear something they're going to want to buy it, but people are not consuming music that way

John Simson, Soundexchange

Thousands of people are listening at any given moment. No wonder the music industry, represented by Soundexchange, has long wanted to collect royalties for the songs being played.

"Webcasters think of themselves as being promotional, helping to sell records," said John Simson, executive director of Soundexchange.

"Record companies are not so sure that it's promotional and I think the evidence is spotty at best.

"There is the knee-jerk argument that if people hear something they're going to want to buy it, but more and more people are not consuming music that way.

"If they have a great channel that plays great Chicago blues all day long then maybe that's all they need. They don't need a compilation record of Chicago blues anymore because anytime they want to hear it they just switch on their computer and go to that station."

Cash crisis

The Digital Millennium Copyright Act in 1998 formally made webcasting an act of publishing and hence performance fees are due retroactively.

The costs involved per listener are now about a couple of cents an hour, maybe a penny each for streaming costs and licence fees

Kurt Hanson, SaveInternetRadio

The Librarian of Congress initially set the rate at 0.14 cents per song per listener then slashed it in half after an outcry from the internet radio operators.

But almost no webcasters have been handing over the cash. That is because small time streamers cannot afford the fees which in some cases amount to tens of thousands of dollars.

The music industry has had little sympathy claiming that everyone from students to serious music buffs are operating with non-feasible business models, something internet radio enthusiasts deny.

"It's clearly a sustainable model, it's exactly the same model as broadcast radio," said Kurt Hanson, from the lobby group, SaveInternetRadio.

"The costs involved per listener are now about a couple of cents an hour, maybe a penny each for streaming costs and licence fees. Radio commercials sell for a penny per commercial per listener.

"So theoretically once advertisers get comfortable with the idea of digital streaming radio being just a different delivery medium then you get revenues. The idea that it's not a viable model is silly."

Royalties dispute

The likes of Yahoo and AOL have no problem paying the royalties on a per song per listener basis.

But for DigitallyImported it could spell the end of a highly popular, yet unprofitable enterprise because as yet revenues are tiny to non-existent.

"If it's a fair share of the proceeds then fine," said Mr Shohat. "For example if I could make $10,000 a year and they want a fair share of that then by all means.

"But what actually happened is that the rates that were set in the US come out to way over 200% of what we make a year."

Last month there looked to be a breakthrough. Small webcasters and Soundexchange reached an agreement in which the former was to pay the latter between 8 and 12% of their revenues as royalties.

But as the Bill reached the Senate for final approval one senator, Jesse Helms, placed a hold on the legislation, putting the entire future of small online stations in jeopardy.

Now everyone is waiting to see if the Senate will reconsider the bill and jumpstart a technologically advanced industry that suffers from a lagging legal structure.